Authorities say Washington turned herself in on Wednesday. She was arraigned and released on her own recognizance.
For eight years in the Senate, Washington pressured her staff to devoting weeks, if not months, to organizing the event, drawing up guest lists that included city and state officials, creating invitations and ordering everything from ice sculptures to bubble machines, prosecutors said.
A 30-page grand jury presentment issued by Attorney General Kathleen Kane's office said Washington "systematically took advantage of her elected office and ... stole the labor of Senate employees who were paid by the taxpayers to perform work for the constituents - and not a political campaign and not for a personal benefit of an elected official."
The charges against Washington include one count each of theft of services and conflict of interest, both felonies. The attorney general's office estimated the monetary loss to the state could range from $30,000 to more than $100,000.
Washington, 68, turned herself in and was released without bail. A preliminary hearing was set for March 26. After leaving the police station in Abington, outside Philadelphia, Washington did not stop to talk to reporters but said in passing that she would fight the charges.
Her lawyer, Henry E. Hockeimer Jr., called the evidence "thin and specious" and that the facts did not amount to criminal conduct.
"She will now do for herself what she has done for her constituents all these years. She will fight," Hockeimer said in a statement.
Washington is the second Pennsylvania state lawmaker to be charged this year, and at least the 14th to be charged during or after their time in office in the past decade.
Washington was elected to the Senate in 2005 after serving in the House for 12 years. She is running this year for a third full term and her May 20 primary election contest against two other candidates is likely to be decided before the case is resolved.
The investigation become public knowledge in October when agents searched Washington's Philadelphia and Montgomery County offices, seeking evidence of political activity. At the time, she blamed a disgruntled and fired ex-employee.
In the grand jury presentment, prosecutors listed seven current or former employees or interns who said they witnessed or carried out tasks to organize the fundraiser on Washington's July 28 birthday. Invitations advised attendees to give money to Washington's political campaign committee, the presentment said.
To prepare for the fundraiser, employees and interns would meet with caterers, decorators and photographers, update mailing lists, stuff and stamp envelopes and place orders for a wide range of party needs, they told the grand jury.
Afterward, they would send thank-you notes to attendees, pay bills, deposit campaign checks and make spreadsheets to track the donations to Washington's campaign committee, they testified.
Between 1,000 and 1,500 invitations were printed on Senate office equipment during the day, one employee testified. Signs and posters for the political fundraiser were printed by a Senate graphic design office in Harrisburg, prosecutors said.
The fired ex-employee, chief of staff Sean McCray, testified that he confronted Washington about the activities for the first time in 2012. She told him she would change, but later cut his salary by $10,000, he said. McCray testified that he confronted Washington again in October 2012 after seeing another employee carrying out tasks for the fundraiser.
McCray said Washington responded with a profanity-laced rebuke, saying she's a senator and she does what she wants, how she wants. "I have been doing it like this for 17 years. So stop trying to change me," Washington said, according to McCray's testimony.
After that, McCray contacted authorities, prosecutors said. He was fired Feb. 7, 2013, they said.
Agents also recorded a telephone call between Washington and former employee Jamila Hall after Hall had been contacted by investigators, according to the presentment. In a partial transcript of the call, Hall asks Washington what she is "able to say" to investigators.
Washington responded, "Well, you can say we didn't do any campaign work in the office. If they ask you about the birthday party, say, I don't know what you say, say at one time we just stuffed some envelopes after work or whatever, I don't know."
Associated Press photographer Matt Rourke in Abington, Pa., contributed to this report.